Why Regulators Went Soft on Monopolies

The process of getting mergers approved appalls the mind. Firms hire Washington, D.C. K Street law firms and engage highly paid economists to argue that mergers will promote efficiencies and lower prices. The top economists in the field move back and forth from consulting firms such as Compass Lexecon or Charles River Associates to run the DOJ and the FTC. The economists create models arguing that mergers will lower prices. But once mergers are approved, prices mysteriously go up.

This naturally influences the work of well compensated pro-merger economists. Financial models rely on questionable assumptions of demand, costs, and the way firms will behave in the future. Numerous studies show that these assumptions turn out to be incorrect, and merger simulations do not accurately predict actual post-merger prices. In layman’s terms, “garbage in = garbage out.” Merging firms pay well, and economists are happy to perform on demand.

Since the early 1980s, economists have become wealthy moving in and out of government promoting mergers. Each time, they land at a cushy law firm or research firm that trades on their inside connections in government, and they return to government.

Link here.